- Government borrowing came in lower than expected again, providing more wriggle room in next month's budget; public sector net borrowing at £5.9bn in September, a small increase from August's figure
- Dovish comments on hiking interest rates from Bank of England deputy governor Jon Cunliffe put the pound under pressure this morning before sterling pared its losses to rise 0.6pc against a basket of the leading currencies on signs thats Brexit talks are progressing
- FTSE 100 dragged to a flat finish by the pound's rise and consumer goods giants Unilever and Reckitt Benckiser sinking
Markets wrap: Deficit at lowest level since the financial crisis; rising pound drags FTSE 100 into flat territory
Public sector net borrowing has fallen to its lowest level since the financial crisis, giving Chancellor Philip Hammond more scope to loosen the purse strings in next month's Budget.
Government borrowing came in below economists expectations at £5.9bn in September, meaning that public sector borrowing is set to undershoot the OBR's more gloomy forecasts.
Elsewhere, after retreating this morning on Bank of England deputy governor Jon Cunliffe's dovish comments, the pound has climbed into positive territory, popping 0.6pc against a basket of the leading currencies, after Brexit talks with the EU showed tentative signs of progressing.
Sinking consumer goods giants and buoyant US-exposed stocks engaged in a tug of war on the FTSE 100 with the pound's jump dragging the index to a flat finish.
Activist Elliott 'pushes for break-up' of Smith & Nephew
Activist investor Elliott Advisors is pushing for a break up of artificial hip and knee maker Smith & Nephew after building up a stake in the firm.
The FTSE 100 firm has been urged to make disposals that could make it more attractive for a potential takeover, according to a report in The Financial Times.
Smith & Nephew’s stock is up more than 5pc since speculation linking Elliott to a position in the firm first surfaced just under a fortnight ago. Its share price was trading more than 1pc up at £14.30 in late afternoon trading today.
Elliott has successfully pushed for strategic or management change at major firms in the past, and pressured for a break up of mining giant BHP Billiton earlier this year.
US Senate chops key obstacle to Trump tax reforms
A key hurdle to Donald Trump’s tax reforms has been eliminated, as last night’s US Senate vote in favour of a 2018 budget resolution means the President will only need a simple majority of 51 senators, rather than 60, to pass his tax cuts.
As a result he will not necessarily need to seek the support of Democratic legislators, assuming he can convince sufficient Republicans to back him.
A major programme of tax cuts was key to the President’s election campaign, with pledges to slash income and business taxes.
The latest budget bill also allows for extra spending in areas such as defence.
Stocks climbed modestly with the S&P 500 and the Dow Jones Industrial Average opening up 0.3pc, and gold sliding 0.5pc.
'Mr Copper' fund sues Barclays for £650m over alleged metal markets rigging
A US hedge fund run by a Conservative party donor known as 'Mr Copper' is suing Barclays for at least $850m (£645m) for alleged market abuse.
Red Kite, co-founded by former Conservative party treasurer and peer Michael Farmer, is claiming losses related to alleged manipulation of the copper market for three years up until 2013.
The suit from the $2bn fund is the latest legal action to hit Barclays, which is fighting separate actions related to funding it received from Qatar after the financial crisis.
Barclays has also had to stomach large fines for manipulating the interest rates benchmark Libor.
US stocks buoyant from tax cuts; Dow Jones weighed down by General Electric slump
US markets have opened buoyantly on the back of Trump's tax reform progress but the Dow Jones is being weighed down by a couple of big fallers this afternoon.
Conglomerate General Electric has sunk 2.7pc to its lowest share price in four years after cutting its outlook on what its new chief executive John Flannery called "unacceptable" earnings while consumer goods giant Procter & Gamble's lackluster sales growth has dragged it down 3.3pc.
CMC Markets analyst Michael Hewson commented on the action in the US this afternoon:
"On the companies front General Electric disappointed market expectations on their Q3 numbers by downgrading their full year outlook sharply from over $1.50c a share to below $1.10c. This is a big miss with most of the losses coming from its oil and gas business. The shares opened sharply lower as investors mulled the next steps in what is likely to be a big restructuring job, which is due to be outlined at a meeting in November.
"Having seen Unilever, Nestle and Reckitt Benckiser miss expectations this week it wouldn’t have been a surprise to see Procter and Gamble also fall short on the revenue and sales side. On the plus side profits did come in ahead of expectations, but sales did fall short and this could well hype up the antagonism currently being played out between the P&G board and activist investor Nelson Peltz."
Logistics firm DX appoints new team after posting 'nil' profits
Under pressure logistics firm DX will be hoping the turnaround specialists now atop the business can jump-start its stuttering performance after posting almost no profits.
Ron Series and Lloyd Dunn, who are credited with the turnaround of rival logistics firm Tuffnells, have been officially appointed as DX chairman and chief executive respectively.
The pair have a job on their hands after what DX described as “an especially challenging period” in its full-year results.
Management said adjusted pre-tax profits were effectively “nil” although a series of write-downs, including a £72m non-cash charge, meant the company posted a reported pre-tax loss of £82m for the year to June 30.
Major monetary policy milestone expected at the ECB next week
With the last couple of weeks dominated by speculation over whether the Bank of England and US Federal Reserve will hike interest rates before the end of the year, the European Central Bank has been drifting towards its own major monetary policy tightening milestone due next week.
The ECB's Governing Council will meet next Thursday and is expected to unveil how it plans to unwind its €60bn-a-month quantitative easing programme.
UBS's chief European economist Reinhard Cluse believes that Mario Draghi will announce that the central bank will cut its monthly asset purchases to €30bn from January for nine months and will then leave the programme's fate beyond next September open.
Mr Cluse added:
"We believe the ECB will maintain a QE easing bias, indicating that it will stand ready to scale up QE again in the event of negative shocks. The ECB will likely reiterate that, in addition to the monthly asset purchases, maturing securities of its QE portfolio will be reinvested for the foreseeable future, and stress their quantitative significance.
"As part of its interest rate forward guidance, the ECB is likely to reiterate that key interest rates are likely to stay at current levels "for an extended period of time, and well past" the end of QE."
Natural disasters will cost insurers £72bn this year, says Swiss Re
Recent catastrophes such as hurricanes in the Caribbean and an earthquake in Mexico will cost the global insurance industry around $95bn (£72bn), Swiss Re has said, although it admitted that the estimates "are subject to a higher than usual degree of uncertainty and may need to be subsequently adjusted."
The world's second largest reinsurer said it alone faces losses of $3.6bn (£2.7bn) from the "extremely powerful" series of natural disasters that took place in the third quarter of this year.
Swiss Re said the two powerful earthquakes to hit Mexico last month will lead it to incur losses of around $175m, meaning most of its claims during the period came from hurricanes Harvey, Irma and Maria.
Daimler profits go into reverse as diesel and recall costs put brake on performance
Daimler has reported a drop in profits as the cost of recalling vehicles and work to reduce emissions from diesel engines weighed on the world’s biggest manufacturer of luxury cars.
The company said that in the third quarter vehicle sales at a group level rose to 824,000, up 9pc compared with the same period last year, and revenue was 6pc higher at €40.8bn. However, net profit slipped 17pc to €2.3bn and on an underlying basis it dropped 14pc to €3.5bn.
The Mercedes cars division held back performance, with a huge recall and work to modify older diesel engines to make them less polluting resulting in a hit totalling about €450m.
US tax cuts progress boosts equities
Investor sentiment has been restored on equity markets today after a Senate budget vote laid the groundwork for Donald Trump's tax cut proposals, according to Mike Van Dulken, head of research at Accendo Markets.
Banking stocks and US-exposed firms such as British American Tobacco and building materials group CRH rising off the back of the progress is offsetting Unilever and Reckitt Benckiser's retreat on their disappointing figures this week.
Mr Van Dulken added:
"Equities are back positive thanks to overnight progress on the topic of US tax reform that has revived investor appetite for risk in the wake of a two-day wobble.
"Increased confidence in US growth, and thus further Fed rate hikes, has sent the dollar higher to the detriment of the pound, the euro and, of course safe-haven Gold, making for a positive final session for the UK FTSE and German DAX, while futures suggest US indices will follow suit this afternoon."
Treasury Committee launches inquiry into UK’s readiness for a ‘no deal’ Brexit
The Treasury Committee has launched an inquiry into how ready the UK is for a no-deal Brexit scenario, reiterating the need for certainty following a week of crunch Brexit talks in Brussels.
The influential parliamentary committee, which scrutinises the UK’s financial services sector, said it had opened an inquiry into the UK’s economic relationship with the EU that will consider the impact of a no-deal exit and the progress of the negotiations.
Conservative MP Nicky Morgan, the former education secretary and remain supporter who chairs the committee, said they would probe "the negotiation, design and governance of transitional arrangements, and the shape of the long-term economic relationship".
Lunchtime update: Deficit falls to lowest level since 2007; miners boost the FTSE 100
The UK's deficit has fallen to its lowest level since 2007 to provide Chancellor Philip Hammond with a little more wriggle room in his Budget next month.
Public sector net borrowing came in at £5.9bn in September, below economists expectations, meaning that the Government is set to undershoot the OBR's more gloomy forecasts.
Elsewhere, after falling on Bank of England deputy governor Jon Cunliffe's dovish comments overnight, the pound has recovered to flat territory against the dollar as Brexit talks show signs of progressing.
Meanwhile, the FTSE 100 has been boosted by miners gaining on stronger-than-expected Chinese industrial data while consumer goods giant Unilever has suffered a second day of decline following its disappointing third quarter results yesterday.
Pound recovers on glimpse of Brexit progress
The pound is recovering on the currency markets from its poor start to the session after traders spotted a glimpse of Brexit negotiations progress.
That rise has taken sterling to a 0.1pc gain against the dollar and 0.4pc advance against the euro this morning. Hardly electrifying but it has reversed the damage done by Bank of England deputy governor Jon Cunliffe's dovish comments overnight.
Spreadex analyst Connor Campbell said this on the pound's recovery this morning:
"The likeliest reason is faint whiff of Brexit progress between the UK and EU at the Brussels summit, with Donald Tusk confirming that the latter would begin internal discussions about the ‘second phase’ of the Brexit negotiations, i.e. the all-important trade talks.
"While that isn’t exactly what Theresa May and David Davis would have wanted, it does leave December as the possible starting date for formal talks – a bit can-kicky, but better than nothing."
UK's deficit falls to lowest level since 2007 in pre-Budget boost for Philip Hammond
The Government borrowed £5.9bn in September, down 11pc on the year to bring the deficit to its lowest level in a decade.
Higher income tax and VAT revenues boosted the public coffers, helping give the Chancellor, Philip Hammond, a boost before next month’s Budget.
So far this financial year the Government has borrowed an additional £32.5bn, down £2.5bn compared with the same period of 2016.
This is the smallest deficit in a decade.
The national debt, excluding the bailed-out banks, stands at a new record high of £1.79 trillion, or 87.2pc of GDP - also a new high.
Interserve rebounds after share price plunge; Acacia Mining reverses on profit fall
Acacia Mining has issued a press release providing an update on the discussions between the Government of Tanzania and Barrick Gold. Read ���� pic.twitter.com/f8Dp3EvbMe— Tanzania Updates (@TanzaniaUpdates) October 19, 2017
Let's have a quick look at what's moving in London this morning.
After plunging 27pc yesterday on another profit warning, troubled outsourcer Interserve has rebounded 12pc after securing a £227m five-year contract from the Department of Work and Pensions.
Precious metal producer Acacia Mining has retreated 5.5pc after revealing that its revenue was hit by its dispute with the Tanzanian government, falling by 40pc in the third quarter. Its shares soared by 16pc yesterday after it revealed that it has struck a deal to end the bitter spat with the East African country.
The other miners are enjoying a boost from base metal prices rising on strong industrial output figures in China and London's heavy weighting of miners means that the FTSE 100 has rebounded 0.3pc this morning.
Acacia Mining takes further revenue hit as deal with Tanzania nears
Gold miner Acacia has posted a 40pc fall in revenue for the third quarter, as the impact of an export ban in Tanzania continued to be felt.
The FTSE 250 company’s results were broadly in line with expectations, given that it has been unable to export around 30pc of its output since March due to a tax dispute with the Tanzanian government.
Revenue fell to $171m (£131m) in the three months to September, while earnings before interest, tax, depreciation and amortisation slumped 60pc to $50m, mostly because of lower sales.
Acacia’s net cash position dropped to $24m from $90.7m in July as the dispute took its toll.
Government borrowing at its lowest since the financial crisis: what the experts say
UK public finances going through a sunny spell. Lowest financial YTD borrowing since 2007 (£32.5bn). On track for lower than OBR forecast. pic.twitter.com/iUVkg7H9f5— Rupert Seggins (@Rupert_Seggins) October 20, 2017
It should be noted that although the recent borrowing figures are undershooting estimates, the OBR believes that much of the damage will be done on public finances in the second half of the financial year.
Let's have a quick look at what the experts are saying in reaction to today's figures.
EY ITEM Club chief economic advisor Howard Archer believes that it is "very welcome news" for the Chancellor.
"The much better-than-expected public finances over the first half of 2017/18 gives the Chancellor appreciable room for manoeuvre in November’s budget.
"However, the Chancellor is hampered by the news that the Office for Budget Responsibility will “significantly” downgrade its assumptions for UK productivity growth over the next five years in its forecasts for the budget on 22 November. This will weigh down markedly on the OBR’s forecasts for UK GDP growth and expected budget deficits."
Pantheon Macro's UK economist Samuel Tombs provides a more sober reading of today's figures.
He argues that the chancellor will not loosen the purse strings in case of a damaging hard Brexit.
"Even so, borrowing now appears to be on track to come in at about £48B this fiscal year, £10B or so below the OBR’s March forecast. The OBR, however, likely will downgrade in forecasts for productivity, countering the beneficial impact of this year’s borrowing undershoot in future years.
"The Chancellor, therefore, is unlikely to soften the existing plans in next month’s Budget enough to prevent the fiscal consolidation from intensifying next year."
Government borrowing snap reaction
UK's public finances in the financial year to September. Taxes, spending & borrowing. In one handy chart. pic.twitter.com/wHpPsaxD62— Rupert Seggins (@Rupert_Seggins) October 20, 2017
I've also just spotted that August's borrowing figure of £5.7bn has been revised down by the ONS to £4.7bn. That's quite a lot to find down the side of the sofa.
Today's figures mean that if the current trend continues, government borrowing will come in about £16bn less than the OBR's forecast, according to Capital Economics UK economist Paul Hollingsworth. Time to loosen the purse strings Mr Hammond?
Not yet, says Mr Hollingsworth.
"After all, the OBR expected the deterioration in the public finances to be back-loaded this year, reflecting the unwinding of a number of temporary factors.
"Moreover, it looks set to revise down its assumptions about productivity and the economy’s potential to grow in its November forecasts, which is likely to significantly reduce the room the Chancellor left himself against his fiscal targets. As a result, this is likely to constrain the Chancellor’s ability to provide big giveaways in the very near term."
Government borrowing release key takeaways
- Public sector borrowing nudged up to £5.9bn in September, below economists' expectations. Borrowing decreased by £0.7bn compared to last year and was the lowest September net borrowing since 2007.
- Government borrowing in the financial year to date is at its lowest since the financial crisis.
- Borrowing so far this financial year decreased by £2.5bn to £32.5bn compared to last year, providing Chancellor Philip Hammond with more wriggle room in next month's Budget.
Public sector borrowing comes in lower than expected; Chancellor will have more wiggle room in Budget
Public sector borrowing nudged up to £5.9bn in September but came in lower than expected to provide Chancellor Philip Hammond more wriggle room in next month's Budget.
Borrowing in the financial year to date is at its lowest since the financial crisis and the Government is on track to undershoot the Office for Budget Responsibility's forecast.
Miners buoyant on stronger-than-expected Chinese industrial data
Chinese industrial production growth accelerating to 6.6pc in September is driving the FTSE 100 forward this morning.
The stronger-than-expected output figures have boosted base metal prices, which are wedded to the fortunes of the Chinese economy.
After coming off Monday's three-year high, copper prices are now back on track for their fourth weekly rise with Chile-based miner Antofagasta leading on London's benchmark index this morning.
Sterling under pressure following dovish Bank of England policymaker comments
Bank of England deputy governor Jon Cunliffe cast further doubt on whether the central bank will raise interest rates next month after saying overnight in a cautious radio interview that the UK is not "seeing sustained signs of domestic inflation pressure".
He said that "when that process [hiking interest rates] starts is a more open question", adding that he will base his decision on whether he can see domestic inflation pressures.
1/ BOE doing their best to cause headaches for GBP and UK rates traders. Cunliffe last night did not sound like a man about to vote 4a hike— stewart hampton (@stewhampton) October 20, 2017
5/ We know Ramsden is no hike. Even Haldane said yest 'UK labout mkt begs all sorts of Qs about future inf pressure.'— stewart hampton (@stewhampton) October 20, 2017
The comments are putting sterling under pressure this morning, according to Spreadex analyst Connor Campbell.
"He joins Dave Ramsden on the dovish end of the spectrum, with the newest BoE deputy governor claiming he was not one of the MPC members who believes rates need to rise ‘in the coming months’.
This, combined with Theresa May’s apparent lack of success at the EU summit, has helped send cable another 0.3% lower, leaving the pound at its worst price in 11 days. "
So that's two policymakers out of nine who seemingly will vote against a hike next month. The maths is getting a little tighter.
Agenda: Pound slips ahead of public sector borrowing figures; miners lead FTSE 100 higher
The pound is topping off another woeful week of trading in the red ahead of public sector borrowing figures.
The release (due at 9.30am) is expected to show that the Government increased its borrowing to £6.5bn last month, a slight uptick from August's return to a deficit. August's figures showed that Government borrowing is at its lowest since the financial crisis and today's reading is expected to show that it will continue to undershoot the OBR's forecast.
After sinking yesterday on weaker-than-expected retail figures, sterling has slipped 0.2pc against the dollar to $1.3130 while against the euro it's drifting back down towards €1.11.
Asia stocks gain as investors re-risk portfolios on US tax hopes after US Senate approved budget blueprint for 2018 w/o Democratic support. pic.twitter.com/6lVWEECuii— Holger Zschaepitz (@Schuldensuehner) October 20, 2017
Base metals and miners are on the rise this morning after industrial production in China picked up in September, beating economists' forecasts.
Buoyant from its heavy weighting of miners, the FTSE 100 has jumped 0.4pc this morning with InterContinental Hotels Group the biggest laggard on its hurricane-hit revenue disappointment.
Full-year results: Oncimmune Holdings
Trading statement: Record, Dechra Pharmaceuticals, InterContinental Hotels Group
AGM: Vast Resources
Economics: Public Sector Net Borrowing (UK), CBI Industrial Order Expectations (UK), Existing Home Sales (US), German PPI m/m (EU), Current Account (EU), Consumer Confidence (EU)